Masses of wealthy Chinese, their money huddled in less-than-secure foreign assets, are yearning to breathe the free air of Canadian capitalism. But Canada doesn’t seem to want them much.

Brimming with the spoils of a historic economic expansion, Chinese millionaires by the tens of thousands wish to make Canada home for their families and their private wealth.

The Canadian immigration system has a program in place to grant rich foreigners permanent resident status, provided they first hand over a six-figure sum to the federal government.

By almost all accounts, that program is broken. It’s rife with delays, an enormous backlog of files and misallocation of funds — all providing fodder to critics who characterize the Federal Investor Immigrant Program (FIIP) as a cash-for-visa scheme that enriches banks while providing little benefit to the country.

Two years ago, the federal government suspended the program, then reinstated it with double the financial requirements and a cap on new applications of just 700 a year.

Would-be immigrants filed their submissions to an intake office in Sydney, N.S., beginning July 3. The quota was reportedly met soon after the office opened in the morning. Of the 700 applicants, 697 were from China. FIIP was then effectively shut down for another year.

Canada approved 3,223 applications in 2010, representing a total of 11,715 people including children and spouses. That’s a paltry figure in the context of Canada’s annual immigration quota of 250,000, says Richard Kurland, a Vancouver-based immigration lawyer and policy analyst.

“It just makes sense to take their money and allow them to consume Canadian goods and services at a time we need it most,” Mr. Kurland said. “They’re buying houses, they’re buying cars, they’re buying consumer goods.” Just what finance ministers across the country are hoping consumers start doing more of.

The Li family (who asked that their real name not be published) is one example of instant economic benefit. Since arriving in Montreal through Quebec’s version of the immigrant investor program in 2005, the family purchased a home in a wealthy suburb of the city, enrolled their son in a private school, and acquired a hotel employing about 20 people.

“I was considering my son’s education and the fresh air, because he has asthma,” Ms. Li said.

Her concerns with pollution are shared by a growing number of Chinese elite, as are fears of political instability, and security of their assets.

“We worked very hard on our business and we earn every penny. I don’t want somebody to take it back,” she said, indicating the family made its money from a electrical component manufacturing business.

Poaching China’s wealthy is also a short-cut to establishing economic ties with China, said Louis Leblanc, head of immigrant investor programs at National Bank Financial.

“Canada being a resource-rich country dominated by exports, the beauty of this is that you’re creating golden bridges throughout the world with these wealthy families coming into Canada,” he said.

In limiting new FIIP applicants, the federal government cited a backlog of more than 15,000 files.

But those familiar with Canada’s economic immigration system say of equal concern is how immigrant money is distributed.

“The main issue is one of financial accountability,” Mr. Leblanc said. “It’s very hard to figure out how the money is used under the FIIP.”

The program requires applicants to prove net wealth of at least $1.6-million, in addition to an up front investment of $800,000 to the federal government, to be refunded after five years without interest. Ottawa then distributes that money to participating provinces, who are mandated with funding projects to create jobs and subsidize economic development.

The program generated about $680-million in 2010, about 40% of which went to Ontario, another 20% to British Columbia, and the rest to the other provinces and territories. The link between incoming foreign capital and funding for Canadian enterprises through the provinces is crucial to the rationale behind the program. But the provinces have struggled to find ways to appropriately invest this money.

“Some of the provinces aren’t really distributing it, they just hold it for five years,” Citizenship and Immigration Minister Jason Kenney said in an interview.

“Sometimes, they don’t even pretend to do anything with it. I think Ontario’s sitting on $80-million or more of investor immigrant funds. They haven’t even set up the pretense of a dedicated purpose for those funds,” he said.

Ontario says it has made recent improvements to its program, signing an agreement with Infrastructure Ontario, loaning the agency $149.2-million for 34 projects that generated almost 5,000 jobs. Another $34.7-million funded emerging technologies through the Innovation Development Fund.

Mr. Kenney called that use of funds “notional,” merely “offsetting their interest costs for five years for that money.”

That charge is one of many leveled by the program’s critics.

“I’m surprised they decided to cap it, it might be better to just end it,” said Jeffrey Reitz, a sociologist at the University of Toronto who focuses on immigration. “They’re basically buying visas. There’s little way around that. And I think it strikes people as inappropriate.

“That’s the reputation abroad, too. That this is a way the Canadian government allows rich people to buy their way in.”

Some of the program’s biggest supporters, meanwhile, are participating financial institutions, he explained. The $800,000 upfront loan flows through a facilitator — typically a Canadian bank — then on to the federal government. But the vast majority of investor immigrants opt for a financing program offered through the banks, which front the loan requirement. The immigrant pays the bank a fee, which can amount to $200,000 or more. “That’s the end of the obligation,” said David Cohen, an immigration lawyer based in Montreal. “The applicant never gets his money back. It cost him $200,000 to do this.” Banks also receive a commission on each file, from which agents overseas charged with finding candidates earn their own fee. “It’s a gold mine for the facilitators and for the agents,” Mr. Cohen said.

That system is partly to blame for the deluge of applications, Mr. Kenney said. As is the relatively low financial requirements. While he says he still sees merits to the investor immigrant program, the seemingly unlimited demand is indication that the program is still priced too low, he said.

“The program is underselling Canada.”

The failings of the federal program, however, shouldn’t stain economic immigration altogether, Mr. Cohen said. “There’s no reason to throw out the baby with the bath water.”

Quebec’s program, which operates independently of the federal program, and which isn’t subject to the cap, has established an effective system of distribution its immigrant loans. “It works,” Mr. Cohen said. “It’s one of the few programs that nobody bitches about in Quebec.” Through Investment Quebec, the banks recommends grants to companies with net assets under $35-million seeking help with projects to expand their business. The same kind of system could be applied federally through the Business Development Bank of Canada, he said. Reducing the federal backlog need not be a monumental problem, either.

Raising the financial requirements again or asking for a deposit could limit applicants to those serious about immigrating to Canada. Alternatively, the federal government could consider simply ignoring the backlog. Chinese millionaires with their minds set on Canada could reapply under heightened financial requirements.

“I can’t get excited about a backlog of millionaires, when they can easily access the front of the queue by paying current market value,” Mr. Kurland said.

Once the federal government fixes the program’s failings, it can capitalize on the economic potential of the elite exodus from China. A recent survey found that 60% of China’s U.S. dollar millionaires, now numbering almost one million, intended to or were in the process of emigrating.

Undoubtedly, there are “millions of millionaires” eager to relocate to Canada, Mr. Kenney said. But their role is limited in countering skills shortages.

“Lending the government $800,000 for five years doesn’t respond to labour shortages and it doesn’t necessarily even respond to the broader demographic challenges,” he said.

But economic integration is becoming a global reality. More and more western countries are courting the wealthy of the developing world through their own programs, of which Canada is a pioneer. Already, the United States, Britain and another of other developed countries have already followed Canada’s lead.

Canada will lose out at its own game if it doesn’t get the FIIP in shape, Mr. Leblanc said.

“Over the next two years, you’ll have at least half a dozen new countries going after the very upwardly mobile wealthy individuals who want access to new citizenship.”